EU readies unprecedented Iran oil, bank sanctions

(BRUSSELS) - The European Union is readying its toughest
action to date against Iran, moving to dry up funding of its contested
nuclear drive by targeting both its oil and financial sector, diplomats
said Friday.

Foreign ministers from the 27-nation bloc meeting in
Brussels on Monday are expected to agree to sanction Tehran's central
bank -- and possibly other banks -- and announce an embargo on
purchasing Iranian oil, EU officials and diplomats said.

In the
build-up, French President Nicolas Sarkozy urged "much tougher, more
decisive sanctions" as a means of avoiding military action while German
Foreign Minister Guido Westerwelle warned Iran was endangering world
peace.

"Those who do not want to reinforce sanctions against a
regime which is leading its country into disaster by seeking a nuclear
weapon will bear responsibility for the risk of a military breakdown,"
Sarkozy said.

Westerwelle said Monday's new "very substantive
sanctions" aimed to make the point that Iran's nuclear behaviour "is
unacceptable and a danger to world peace."

Also expected Monday
are bans on the sale of gold, diamonds and other precious metals to Iran
and any delivery of newly minted coins and notes. Existing bans on
petrochemical imports and investment are to be enlarged.

Reports
however of an imminent resumption of international talks with Iran on
its disputed nuclear programme were dashed by EU foreign policy
Catherine Ashton, who represents global powers in the negotiations.

Her
office said the powers still "are waiting for the Iranian reaction" to a
letter sent by Ashton to Tehran months ago offering to re-start the
talks but only "without pre-conditions."

Greece's dependency on Iranian oil meanwhile was holding up a deal on the timing and conditions of the oil embargo.

The
political will was there, but the bloc was still looking for new
suppliers able to match the easy conditions offered by Tehran to the
cash-strapped nation.

Greece, which relies on Iranian oil for more
than a third of its oil imports, had concluded "good financial
arrangements" with Iran that include 60-day payment and no financial
guarantees, sources said.

"Greece has agreed on a political level
to stop its imports from Iran, the question is who can compensate," a
diplomat said. "Of course it will be more difficult to find alternative
suppliers because of the present financial situation of Greece."

Diplomats
said a political decision on the embargo was expected from the
ministers on Monday although "the financial solution will require more
time."

The new EU sanctions are part of a concerted effort with
the United States to pressure Iran into halting its controversial
nuclear activities, which the West suspects are aimed at developing
nuclear weapons.

Iran says its nuclear programme is purely for civilian use.

The
EU imported some 600,000 barrels of Iranian oil per day last year,
according to the International Energy Agency, making it a key market
alongside India and China, which has refused to bow to pressure from
Washington.

Iranian oil accounted for 34.2 percent of Greece's
total oil imports, 14.9 percent of Spain's and 12.4 percent of Italy's
in the first nine months of last year, according to the latest EU
statistics.

With the three nations all suffering financial
difficulties, weeks of talks on an oil embargo have stumbled on a
deadline for EU importers to phase out existing contracts.

Britain,
France and Germany called for a three-month deadline, whereas Greece
requested up to a year. A compromise under discussion would see the
embargo take full force in five months on July 1.

Under discussion
too has been a request from Italy to allow Iranian companies to
continue repaying debts with crude instead of cash, a move which some
argue would mean Tehran having less crude to sell on the market.

EU
nations too have been divided over when to review the embargo to assess
its impact on the likes of Greece, and whether it is undermining the
global oil trade as well as Iran's economy.

Already agreed is a deal to sanction Iran's central bank to freeze assets used to finance its nuclear drive.

The
freeze would be partial "enabling legitimate trade to go ahead", and
ensuring there were no obstacles to continued payment of outstanding
Iranian debts to Europe, an EU diplomat said.

Germany notably
expressed concern over the reimbursement of loans to Iran worth 2.6
billion euros should financial channels be closed.